In a press release dated Dec. 31, 2010, Manitoba Finance Minister Rosann Wowchuk announced the elimination of the “general corporation capital” tax effective Jan. 1, 2011.
Minister Wowchuk announced that as a result of this action Manitoba businesses would save, collectively, $119 million in taxes per year. In the press release Minister Wowchuk went further, stating that since 1999 (when the NDP formed Manitoba’s government) as a result of tax reduction measures taken by the NDP, Manitoba families and businesses, as of January 2011, would be collectively saving $1.1 billion in taxes per year.
While families and businesses have been and continue to be saving as a result of these tax reductions, the government of Manitoba has been and continues experiencing lowered revenues equivalent to the savings, that is, $1.1 billion per
In fiscal year 2010/11 the Manitoba government reported a deficit of $467 million. In fiscal year 2011-12 the deficit was $464 million and the projected deficit for 2012/13 is, at present, $567 million. All other things being equal, had the government not made those tax reductions for families and businesses the Manitoba government would have been and could be experiencing a surplus ranging upwards from $500 million per year. Or the Manitoba government could have spent $500 million more, every year, in areas of significance and concern to Manitobans and still maintain a balanced budget.
In 1995 the Manitoba government passed legislation which restricted the governing party from putting the government into a deficit position on a fiscal year basis. Since the passing of the legislation, such deficits originally invoked significant penalties upon the governing party, in particular, the ministers. As
well, the legislation instituted the requirement for a referendum to be held with respect to any and every intent on the part of the Manitoba government to increase taxes — income, sales and payroll.
In 1995 this legislation might have made some sense particularly in light of legislation from 1989 whereby a Fiscal Stabilization Fund (FSF) was created by the Manitoba government. The FSF allowed the government to enjoy excess revenues (that is, surpluses) which it could deposit to the fund for “rainy day” use.
Until relatively recently the two pieces of legislation worked fairly well. Surpluses accumulated in the FSF were used to supplant the decreased revenues resulting from the tax reductions, thus ensuring balanced budgets. The economic conditions prior to 2009 must also be recognized as contributing to the success of the legislation. However, with worsening economic conditions, decreased tax revenues from tax savings to families and businesses, and unexpected expenditures, revenues were consistently less than government expenditures, resulting in real deficits which the FSF could not possibly cover in total.
This condition continues to exist and creates the dilemma for the Manitoba government. The apparent and obvious solutions are to decrease government spending or increase government revenues or incur deficits. But there are no fans of any of these options. There is no area of government spending that does not have the support of at least some part of the Manitoba population or which is not deemed necessary to the efficient and effective functioning of the Manitoba community.
By law (until the balanced budget legislation is rescinded) the government cannot raise revenues through increased taxation without a referendum. The probability of taxpayers voting for tax increases is virtually nil at best and, at worst, would result in tax increases on some small segment of the population that cannot rally sufficient support for their cause. As for deficits, the Manitoba taxpayer has been programmed to believe in the iniquity of deficits.
The situation for the Manitoba government is a difficult one. Improved economic conditions, which might result in increased government revenues or reduced expenditures, will not happen in the immediate future.
Meanwhile, the demand for government expenditures not only continues but increases because of lack of previous expenditures and investments (example — infrastructure, environment, education, health). Taxpayers continue to demand reduced taxes regardless of impact. No matter what action it takes, the Manitoba government will be vilified.
The irony is that the past actions of reducing taxes has created a most problematic situation for the government. Hindsight would suggest that the government should not have been so generous in eliminating taxes for families and businesses, thereby building up a larger fund to help Manitobans through the “rainy days” and, potentially, addressing the deficits in programming for which Manitobans will have to pay in some form.
But then we might be tempted to applaud the government for its fiscal management skills. Heaven forbid!